ITOT vs. VOO: Which S&P 500 Index Fund Is Best?
Two of the most popular exchange-traded funds at the forefront of any investment consideration are iShares Core S&P Total US Stock Market ETF (ITOT) and Vanguard S&P 500 ETF (VOO).
Both funds provide broad market exposure to U.S. equities, but you should consider significant differences in their holdings before pricing one.
What is an ETF?
Before diving into our main comparison, let’s quickly discuss ETFs. An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product traded on stock exchanges, much like individual stocks.
An ETF holds assets such as stocks, commodities, or bonds and generally aims to track a specific index. ETFs are popular as they typically offer lower expense ratios than mutual funds, provide excellent diversification, and are easy to trade.
Overview of ITOT and VOO
What is ITOT?
The iShares Core S&P Total US Stock Market ETF (ITOT) provides broad exposure to the entire US stock market, holding around 2,500 companies. It allows you to invest in a single fund with small, mid, and large-cap equity exposures.
What is VOO?
On the other hand, the Vanguard S&P 500 ETF (VOO) aims to replicate the performance of the S&P 500 index, concentrating more on large and mega-cap companies in the US.
Expense Ratio
Keeping costs low is one of the key ways to maximize your investing returns over time. Therefore, expense ratio - the annual fee that all funds charge their shareholders - is always a key factor to consider.
ITOT and VOO outshine many ETFs with their low expense ratios. Both ITOT and VOO have an expense ratio of 0.03%, which means for every $10,000 invested, the cost would be $3 annually.
Dividend Yield
Dividend yield is another key factor, especially for investors looking for income generation.
ITOT has a dividend yield of around 1.3%, while VOO’s dividend yield stands slightly higher at around 1.4%. This means that for a $10,000 investment, ITOT would generate around $130 in annual income, while VOO would produce about $140.
Holdings
Generally, both ITOT and VOO have similar holdings, particularly in the top-10 segment with household names like Apple, Microsoft, Amazon, and Alphabet. However, the key difference lies in the range of companies in each fund’s portfolio.
VOO is concentrated on large and mega-cap companies since it follows the S&P 500 index, which is comprised of 500 of the largest U.S. companies.
In contrast, ITOT offers broader exposure by following the S&P Composite 1500 Index, covering large, mid, and small-cap companies. ITOT may thus offer more diversification and potential for growth with its wider array of holdings.
Performance Comparison
In terms of performance, both VOO and ITOT have had robust returns over the years. VOO, tracking the historical performances of the S&P 500, offered consistent and strong returns, especially in a bull market dominated by large-cap growth stocks.
ITOT, on the other hand, by including small and mid-cap stocks, can have potential advantages in different market environments, such as when small or midsize companies outperform large-cap stocks.
However, their performances would highly depend on the prevailing market conditions and the performances of the individual indices they are tracking.
ITOT vs. VOO: Which is Better For You?
Choosing between ITOT and VOO ultimately comes down to your investment goals, risk tolerance, and market outlook.
If you want broader exposure to the entire U.S. stock market with possible higher growth potential and don’t mind slight additional volatility that may come with smaller caps, ITOT could be a better choice.
But for those who prefer sticking with larger, more stable companies or those who believe that the S&P 500 will perform better, the Vanguard’s VOO might be a better choice.
However, the inclusion of both ETFs in your portfolio might give a balance between broad exposure (ITOT) and focused high-performers (VOO).
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FAQ
What is the Vanguard equivalent of ITOT?
The equivalent of ITOT from Vanguard would be Vanguard Total Stock Market ETF (VTI), as they both aim to track the entire US Stock market, encompassing small, mid, and large-cap equities.
What is the difference between ITOT and SPY?
While both ITOT and SPY (SPDR S&P 500 ETF Trust) track indices by S&P, the major difference lies in the specific Indices they track and the market exposure they provide. ITOT tracks the broader S&P Composite 1500 Index, giving exposure to the entire US stock market, including small, mid, and large-cap stocks. In contrast, SPY follows the S&P 500 Index, thus only provides exposure to large-cap stocks.
